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What benefits can you provide to your employees tax-free?

What benefits can you provide to your employees tax-free?

What benefits can you provide to your employees tax-free?

Wednesday 17 January, 2024

End of year tax saving tips

As tax reporting season winds down, and we enter the final quarter of the tax year, seize the opportunity. Explore non-taxable benefits and reliefs for employers/employees before they slip away.

Did you know that some company benefits can be provided by employers to their employees without incurring a tax bill? These range from simple perks, which don't require reporting as benefits-in-kind on a P11d, to more complex salary sacrifice schemes that can save both parties significant amounts of tax and potentially national insurance.

We have listed some of the main tax saving tips for employers and employees below. However, this list is by no means an exhaustive list, and some tips have quite complex rules attached. Therefore, it is always best to seek professional advice from qualified accountants. Visionary Accountants love helping our clients to save money so if you're in St Albans look us up!

Salary Sacrifice Schemes

Employers can put in place salary sacrifice arrangements to allow their employees to swap gross salary for an allowable benefit. It is a contractual agreement to reduce an employee’s entitlement to cash pay, usually in return for a non-cash benefit. This can yield savings of tax and NICs for both the employee and the employer.

As an employer, you can set up a salary sacrifice arrangement by changing the terms of your employee’s employment contract. Your employee needs to agree to this change.

A salary sacrifice arrangement must not reduce an employee’s cash earnings below the National Minimum Wage (NMW) rates. Employers must put procedures in place to cap salary sacrifice deduction and ensure NMW rates are maintained. This isn't a problem for Visionary Accountants' clients as our payroll experts in St Albans already do this automatically.

Exempt benefits excluded from benefit-in-kind reporting

Here is are examples of benefits available under salary sacrifice schemes that don’t require benefit-in-kind reporting:

  • Payments into pension schemes
  • Employer provided pensions advice
  • Electric car leases
  • Workplace nurseries
  • Childcare vouchers and directly contracted employer provided childcare that started on or before 4 October 2018
  • Bicycles and cycling safety equipment (including cycle to work)

Working from Home Expenses

If you live in St Albans, or anywhere in the UK for that matter, our accountants recommend that you review your working from home expenses and allowances. 

Employees can claim working from home allowance if, for example, their employer doesn’t have an office, or if they live too far away to sensibly commute into the office. They cannot claim tax relief if they choose to work from home or if their employment contract lets them work from home some/all of the time or if their employer has an office, but they cannot go there sometimes because it’s full.

The maximum amount that is allowed tax free is £26 per month (or £6 per week). HMRC state that the following two clauses must also apply to be exempt from tax:

  • they are working at home as agreed with you and they regularly work from home under those arrangements
  • the amount you give them is not more than their additional household expenses or the amount you give them is not more than the current weekly limit of £6

You can only claim for things to do with your work, such as business phone calls or gas and electricity for your work area. You cannot claim for things that you use for both private and business use, such as rent or broadband access.

You can either claim tax relief on:

  • £6 a week from 6 April 2020 (for previous tax years the rate is £4 a week) – you will not need to keep evidence of your extra costs
  • the exact amount of extra costs you’ve incurred above the weekly amount – you’ll need evidence such as receipts, bills or contracts

HMRC also state that for equipment, services and supplies to an employee who works from home (subject to the above criteria), you do not have to report or pay tax if either:

  • they’re only used for business purposes
  • any non-work use (‘private use’) is insignificant

This includes laptops, tablets and computers. You can decide how much private use you allow but you need to state this clearly to employees. 

You’ll get tax relief based on the rate at which you pay tax usually collected through your tax code. If you haven't claimed for previous years then you can go back 4 previous tax years.

Gifts and Entertaining

Trivial Gifts

If employers wish to provide a gift to their employees, then utilising the trivial benefit tax exemption may be for you. This exemption is specified at section 323a of ITEPA  2003. 

There are four conditions that must be met for the exemption to apply. These conditions are:

  • the benefit isn’t cash or a cash voucher  
  • the cost of the benefit doesn’t exceed £50  
  • the benefit isn’t provided as part of any contractual obligation (including under salary sacrifice arrangements)  
  • the benefit isn’t provided in recognition of services performed, or anticipated to be performed, by the employee.

There is no limit on the number of trivial benefits provided to employees throughout the tax year. Typically, the benefit would be triggered by an event, for example, a birthday, Christmas or the birth of a child. However, for directors of close companies the rules are slightly different; in that they can’t receive trivial benefits of more than £300 in a tax year.  

By using the trivial benefit exemption, you could provide your employees with a turkey ready for Christmas dinner, a gift hamper, bottles of wine or a magazine subscription. The possibilities are endless, providing you meet the above four conditions. Read our in-depth article here.


Staff entertaining has its own rules; from Christmas parties to Summer outings this is a common perk for employees. A tax exemption is available for annual functions, up to £150 per head. This is specified at section 264 of Income Tax (Earnings and Pensions) Act (ITEPA) 2003.  

Be aware that:  

  • This is an exemption, not an allowance.
  • The value is truly per head, and not limited to employees only, so can include partners, children and so on.  
  • The exemption applies to “parties and functions” so more than one event can occur in a year but the cost per head must not exceed £150 and this is divided over the number of events in a year.
  • The £150 exemption includes the event costs plus transport, accomodation and VAT if these are applicable.

If multiple events take place and the cost per head exceeds £150 combined, then only one of the events can be covered by the exemption. So, if the summer barbecue cost £50 per head, and the Christmas party cost £110 per head, the employer would be savvy to use the exemption for the Christmas party, and the summer barbeque would need to be dealt with separately. Read our in-depth article here.

Other non-taxable benefits to consider

  • Mobile Phones. One mobile phone per employee (this is actually a good benefit to offer as there are no benefit-in-kind charges on these and the employee doesn’t have to repay the apportioned amount of personal use either).
  • Eye tests (for VDU users).
  • Business travel (Other than travel to their normal place of work).
  • Some professional fees and subscriptions (subject to HMRC qualification).
  • Holiday purchase scheme (whereby the employee is able to buy additional days’ leave which is deducted from their ‘gross’ pay usually over 12 months). Read our in-depth article here. 

Making it happen

“Salary sacrifice schemes, in particular, can be a very valuable and tax-efficient arrangement for companies and their employees. We have helped set up many of these schemes for our clients in and around St Albans, Hertfordshire and London, and ensured that they don't fall foul of complex HMRC tax rules. Clients are quite often surprised at the range of tax-free benefits available to them to improve their employee benefits packages.”

Tena Wallace, Visionary Accountants HR & Payroll expert in St Albans

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